Let's start with the positives first. You survived last weeks eclipse without harming your vision. {Thumbs up emoticon} Oh yeah... and it turns out all those eclipse market crash articles were meant for 2024 not 2017. Now that we have that out of the way, it's on to some more pressing matters: Did the bull market make a meaningful top earlier this month? Where are we headed in the weeks and months ahead?
I'll try to answer both of those questions in this brief breakdown of the market.
First lets look at the 20 year $SPY chart:
This month is setting up to be only the second negative month for the $SPY since the start of 2016. It's been a strong and relentless rally, with both small and large cap stocks roaring to never seen before heights in 2017. The trend remains up, and decidedly so.
Short term the price action has become choppy. This has coincided with a recent spike higher in the VIX. If the VIX was a living breathing human you could say it was taking offense to the daily commentary about how dull and boring the market was. "I'll show you" said the VIX. And sure enough after the VIX plunged to a new all time low, it spiked. and nearly doubled in the span on a few weeks.
However every VIX spike since March 2009 has resolved to the downside. And almost every spike, once faded, has resulted in even higher stock prices. The VIX spike and ensuing market dip has almost acted as a spring board for higher prices.
So here we are again with the VIX coming off a recent spike. The market has yet to regain its animal spirits and launch higher. However previous price action tells us it is only a matter of time before this happens.
On a shorter time frame the $SPY momentum turned positive, which has been a very good indicator over the last 8 years.
Small caps have been leading the overall market since just before the election in November 2016. $IWM also is sporting a momentum shift, which means higher prices could be on the horizon.
Tech continues to chop around after seeing some heavy selling at its peak a many weeks ago. The long term $QQQ chart shows a slow and steady upward price action. The trend remains up.
Bonds are still getting the love too. $TLT, the 20 year treasury bond ETF isn't having a terrible 2017 either.
I think the bond market has more room to go over the short term, but there is a possible pattern forming that could spell trouble into the fall. I'll cover that later.
Despite the market's sideways type week last week the VIX was melting like an ice cream cone in the sun.
Korea is launching missiles, political and social issues persist domestically. The debt ceiling and a potential government shutdown is coming back into focus (FWIW the market rallied the last time the government was shutdown) If you are looking for reasons to sell, there remain plenty. Yet this market is going to do what its going to do despite the headlines.
The overall market looks to be setting up for some short to medium term upside, led by small caps. The only question will be its strength and duration.